Out of state real-estate investment advice

Russell · #1 (**permalink**) 03-22-2005, 03:12 PM

Seeing how the houses are almost $600-$700k in CA I'm considering buying a rental property out of state. However, I'm not sure where to even start doing the research. I want to know what kind of tax benefits I will have, if any. I also have no idea what it takes to be a landlord etc...

Is anyone who might be a landlord or in a similar situation has any advice ?

Thanks.

MrsChambers · #2 (**permalink**) 03-22-2005, 03:23 PM

My advise would be: not to be an "out of state" landlord. UNLESS you choose an area that is easly accessable for you to get to *just in case*

it is my opinion that when you have renters that know the owner resides out of state, then things have a better chance of "hitting the fan" if you know what I mean.

Russell · #3 (**permalink**) 03-22-2005, 03:31 PM

I agree and I've been thinking about this myself.

However, my wife's family is in upstate NY and I also know some good friends in other states too. So assuming I can ask a family member or close friend to manage the property for me, is it still a bad idea ?

The duplexs in CA are going for $1.5M to $2M in nice areas...maybe I should buy a piece of land out in NM, by the time it'll appreciate to CA like prices I'm sure it'll be where CA is on the map...at least my great grand kids would get to reap the benefits

34saving · #4 (**permalink**) 03-22-2005, 03:33 PM

I'm a landlord, but the house that we're renting out is only a block from our residence. Personally, I wouldn't want to own a rental that's far away because I need to keep an eye on things and personally interact with our tenants to feel secure in my investment. If you have a different personality, however, an out of state rental might be a possibility. You need to find a local manager or management company to deal with repairs, find tenants, whatever.

As far as tax advantages . . . they're pretty good. Gennerally speaking (I'm not an accountant, speak with your tax advisor, blah, blah, blah) you can deduct: Interest paid, points paid, management expenses, advertising expenses, repair expenses, tax expenses, insurance expenses, and . . .here's the biggie . . .depreciation. Now, you have to recapture the depreciation when/if you sell, but in the short term it's a good deal. You can also avoid some appreciation/capital gains issues if you roll the money into another investment property or move into it. (live in a house 2 of last 5 years = lots of excluded capital gains).

Happy researching!

gakline · #5 (**permalink**) 03-22-2005, 04:02 PM

There are some local real estate agents that will act as landlords for you in your chosen area. Granted you pay a fee, but they take care of the maintenance, renting, etc.

Russell · #6 (**permalink**) 03-22-2005, 06:41 PM

Thank you all. If anyone else wants to add anything I'm definitely listening.

34saving, I've saved your response for future reference, thank you!

PRICEPLUS · #7 (**permalink**) 03-22-2005, 08:42 PM

I like the thought of buying raw undeveloped land and holding on to sell at a profit. The housing laws vary from state to state and you can get burned by bad tenants. Here in NYS it can sometimes take months to get a dead beat tenant out. All the while you are losing money. Then of couse NYC has rent control which is another kettle of fish altogether. Best to do some serious searching for info! Best of luck!

PennyPincher · #8 (**permalink**) 03-23-2005, 06:53 AM

I am a landlord as well ~ scary thought. My rental property is also a block away, so I have great access for repairs or any concerns.

One site that helped me alot was www.mrlandlord.com. There are alot of free forms on the site, and great advice from experienced landlords. I put a great lease together with the help I found there.

I am not aware of the percentages that real estate companies charge, but it can be a wise idea to let another professional handle the place in your absence. This is very common in beach tourist areas, for example, where the owners may live states away. If you can bring in enough rent to cover those costs and your mortgage, I think it's a great way to go.

You can also deduct any condo fees, and expenses involved when the house/apartment is not occupied. (when you are attempting to rent it out...)

Russell · #9 (**permalink**) 03-23-2005, 01:13 PM

wow, looks like I'll be busy for a week just reading the material on that site.

Thank you!

rjn · #10 (**permalink**) 03-25-2005, 08:53 PM

We just bought a home 600 miles away that we hope to move to within 5 years. My wife goes to this area to visit her family every month or so. While the house is not a fixer-upper, I did spend 10 days working on it after we bought it. More importantly, I tried to establish relationships with people I could call on if work is needed. The house rental is being managed through a real estate firm, but I did not feel that I could depend on them in an emergency. And yes, on my wife's visit a couple of weeks ago, she found water leaking in one of the bedrooms - an ice dam. The carpenter that I had identified not only repaired the sheetrock, etc. but found the source of the leak and fixed it.

There are income limits to writing off rental property losses. The loss can be carried forward to a time when income is lower.

skipper · #11 (**permalink**) 03-28-2005, 03:43 PM

I have two rentals best investment we ever made we bought them at a tax sale and made our money back in two years. We rent our units through section eight to low income families who get housing assistance the majority of the rent is paid by the state the families pay the rest the families take very good care of our houses because if the state gets a complaint they can be removed from the program and loose their rental assistance

Russell · #12 (**permalink**) 08-30-2005, 09:46 PM

I'm bringing this back up as I have a couple of more questions.

How does one make money from rental properties ? I just used this calculator:

http://www.goodmortgage.com/calc_inv...t_property.htm

Lets plug in some number real quick. Say I buy a property for $50k (lets assume I pay for it in cash), we have:

Purchase price: $50,000
Down payment: $50,000
Monthly rental: $500 (assuming you can get at least that)
Rent increase: 1%
Home insurance: $200 (?)
Yearly taxes: $1000 (?)
Monthly expenses/maintenance: $200 (?)

After all the taxes etc looks like your after-tax cash flow is only $2286 per year. This doesn't even include the salary of your property manager if you needed one (for out of state investment for e.g.)

How does one get rich investing in real-estate ? Am I missing something here ?

cercis · #13 (**permalink**) 08-30-2005, 10:36 PM

Investigate the evicition statutes and fees in whatever state.

TX is extremely friendly to the property owner in eviction. But my firm will charge you $150-$200 if we don't have to file a court action. I'm not sure yet what a court action will cost, I'm guessing minimum $600.

Massachusetts is extremely friendly to the renter. If they have kids they have to have found housing that is certified lead free before they have to move out. It's like unemployment, they show that they looked x number of places each week/month and that they weren't lead free and they can stay there, rent free, for a long time (I have no idea how long, I know of one case that was well over a year).

Other states are inbetween.

CRFSaver · #14 (**permalink**) 08-31-2005, 08:38 AM

Chicago is very renter friendly as well. Also be careful of places with rent control (Berkeley, Studio City, etc). The other trick you can do is buy in a new condo developement where you have a "home warranty" so if anything needs fixed you have that for a couple years.

gakline · #15 (**permalink**) 08-31-2005, 08:52 AM

What do property managers charge typically? What about using a realtor to rent your property, what are the charges?

Russell · #16 (**permalink**) 08-31-2005, 02:56 PM

Those are excellent points, but laws and management cost aside, I still don't see how this could be a lucrative venture ? Even if you self manage the property, looks like it'll take 25-30 years just to pay off a $50k property. I could invest that same $50k for 25 years and turn it into close to $100k even it only earned 3.3%.

34saving · #17 (**permalink**) 08-31-2005, 03:12 PM

Most people agree that if you have any positive cash flow in the first year you're doing well because 1) You get lots of tax benefits 2) You get appreciation (lets hope you get appreciation anyway) Then, hopefully, as the years progress you make more and more money. I'm sure there are landlords losing money on rent right now with the hopes that they'll make up for it when they sell.

CJsoccerchic · #18 (**permalink**) 12-01-2005, 10:48 AM

Real Estate here on Guamn is good. There are places here on the island that are considered "hot" as far as condo's go. Many people here have made a killing having a condo here that they bought for about 250K and rent out to the military for 1500-2300$ per month. granted, therr are real estate agents to pay, but that's one month's rent for a one year lease. In the end, it's good. Real Estate taxes on Guam are very low & you would be surprised to learn how many people from the states have property here in Guam that is making them good income!

CJsoccerchic · #19 (**permalink**) 12-01-2005, 10:51 AM

Quote:

Originally Posted by gakline

What do property managers charge typically? What about using a realtor to rent your property, what are the charges?

As far as property mangers go, I don't know their rate. But I do know that if you have a real estate agent get you a place and find you a renter, you pay 1 months rent on a 1 year lease and if anything needs to be done to the home (paint, carpet cleaning) they'll find a plcae that can do it and send the bill to you. Hopefully you find a good realtor that will look for the best prices out there for you!